Now, as the COVID-19 pandemic dominates, business owners need to be on top of their business as well as in it. And that means good and regular management information.
It is not uncommon for entrepreneurs and business owners to very quickly become buried in the day-to-day running of the business. Long hours and working weekends are often the norm has a business takes off.
But as the business grows into the equivalent of those awkward teenage years or when a crisis like the coronavirus pandemic strikes, it is important that business owners keep on the business to get those overview insights. It is the difference of being in a trade and being a businessperson.
A business from all outward perspectives may look profitable and successful, but rapid growth brings its own challenges. Cashflow is king and is often the trigger for a business owner to look at how the business performing and how it might need to evolve.
REGULAR MANAGEMENT INFORMATION IS VITAL.
Business owners need insights into which of their products and services make money, the level of sales need- ed to meet overheads, the impact of advertising and marketing campaigns, and any annual trends that may impact cash flow, such as seasonal peaks and troughs.
Management information is needed to help business owners plan for both the short and long term.
Short term issues will typically include cash in the bank to meet tax liabilities such as the quarterly VAT returns, performance of individual product and service lines, the focus for sales teams, and any over-reliance on one supplier or customer. Longer-term issues will typically include financing requirements and current and future financial commitments.
Management information should be used to aid decision making with a view of keeping a business owner on top of the business.
Management reports will, quite naturally, be different from one business to the next, but they will typically include some if not all of the following.
Debtors - Debtor reports outlining who owes the business what and the length of outstanding invoices are essential. Businesses owners need to keep on top of its debtors, chasing for payment, and agreeing credit terms and limits. Depending on terms, business owners may want to look at its debtors at least once a month.
Bank balance - What is in the bank is not necessarily a good indicator of financial health but is critical in meeting short term liabilities. Check regularly.
Turnover by product or service lines - An understanding of where the money is coming from is vital. It will allow business owners to decide items to drop, where greater support is needed, and where to focus time and energy. Review turnover against profit per customer/client and time spent at least quarterly.
Profit - The saying that ‘turn- over is vanity, profit is sanity’ rings true. A monthly profit and loss report showing income and expenses is vitally important, helping to spot trends, gaps in management information, and where costs are rising and when it might be time to renegotiate with suppliers.
Tax - Paying the HMRC on time is important to avoid unnecessary penalties. Ensure management reporting includes alerts to upcoming tax liabilities.
Online accounting tools, like Xero and Quickbooks, make the creation of management reporting easier, quicker and in real time. It is possible to create dashboards that links to a bank account allowing business owners to make decisions based on the current financial position.
Reports are often visual showing trends more clearly and include built-in checks to ensure information is as accurate as possible. Reporting offers greater flexibility, allowing, for example, debtor lists to include contact details to make chasing debts that much easier. Online accounting also allows the use of specialist apps, such as staff expenses or invoicing factoring. By integrating these, the record keeping process becomes more efficient and so creates time for looking at the output reports.
Online accounting and its reporting puts management in touch with the information that matters most at anytime and anywhere.
Making Tax Digital, which amongst other things requires businesses to file all VAT returns online, and Real Time Information on payroll software adds further weight to the importance of online accounting tools and the management information they provide.
HELP IS AT HAND
The good news is that business owners do not need to do this all by themselves or rely on online accounting software. A good firm of accountants can help identify the best systems to put in place to ensure management information is as accurate as possible and delivered in a timely way.
But a great accountant can tell the story behind the figures, helping business owners make sense of the numbers. A second and fresh pair of eyes can help business owners makes greater sense of the financial information. They should play the role of a ‘critical friend’ challenging a business owner to perhaps focus on things they may have overlooked or have been putting off.
Jenny Crockford is a Business Advisory Manager at accountants and business advisers Kreston Reeves. She can be reached by email: firstname.lastname@example.org